The April 2002 Senior Loan Officer Opinion Survey on Bank Lending Practices focused on changes in the supply of and demand for
bank loans to businesses and households over the past three months. The survey also contained two sets of supplementary
questions. The first set addressed changes in banks' lending policies with regard to commercial paper backup lines of credit
over the past twelve months, and the second focused on the effect of problems in the market for terrorism insurance on
commercial real estate lending. Loan officers representing fifty­six large domestic banks and twenty­one U.S. branches and
agencies of foreign banks participated in the April survey.

Results of the survey indicate some further tightening of standards and terms for loans to both businesses and households.
However, the number of domestic and foreign banking institutions that reported having tightened standards and terms on
commercial and industrial (C&I) loans over the past three months moved down considerably from the January survey. The net
fraction of domestic institutions that indicated that they had tightened standards for commercial real estate loans in the
April survey also declined, though it remained relatively high. Banks continued to report a weakening of demand for C&I and
commercial real estate loans, albeit at a lesser rate than in January. According to the domestic respondents, standards for
residential mortgage loans were largely unchanged over the past three months, and demand for these loans was moderately
stronger on net. As in January, a relatively small portion of domestic banks, on net, reported tightening standards for
consumer loans. For the second consecutive survey, banks reported tightening terms on non­credit­card loans to a greater
extent than they have terms on credit card loans. Demand for consumer loans was roughly unchanged over the past three
months.

Commercial and industrial loans. Compared with the January survey, significantly smaller fractions of domestic banks
and U.S. branches and agencies of foreign banks reported that they had tightened standards on C&I loans. The percentage of
domestic banks that reported having tightened their standards on C&I loans to large and middle­market firms over the past
three months moved down to 25 percent from 45 percent in the previous survey; the percentage tightening standards on business
loans to small firms declined even more, from more than 40 percent in January to about 15 percent in April. Similarly, the
fraction of U.S. branches and agencies of foreign banks that had tightened standards for customers seeking C&I loans or credit
lines fell from 70 percent in January to about 40 percent in the current survey.

In April, smaller fractions of domestic banks reported tightening most of the lending terms listed in the survey for
large and middle­market firms than in January. The largest change was in the net fraction of banks that had increased
spreads of loan rates over their cost of funds, which fell from 40 percent in January to about 25 percent in the
current survey. In addition, somewhat smaller net percentages of banks reported that they had tightened loan
covenants and increased the cost of credit lines for these customers over the past three months. However, about 45
percent of domestic banks increased premiums charged on riskier loans to large and middle­market firms, about the same
as in the January survey.

Changes in terms on C&I loans to small firms followed a similar though more pronounced pattern. The net fraction of
domestic banks that tightened covenants on loans to small firms fell from 40 percent in January to only 12 percent in
the current survey; the net percentage of banks that increased spreads of loan rates over their cost of funds moved
down from 37 percent to 13 percent over the same period. The net fraction of banks that reported increasing premiums
charged on riskier loans to small firms over the past three months edged down from 40 percent in January to 34 percent
in the current survey.

The fraction of U.S. branches and agencies of foreign banks that tightened terms on C&I loans generally declined but
remained elevated. The percentage of foreign institutions that raised premiums on riskier loans decreased from 75
percent in January to 52 percent in the current survey, and the fraction of foreign banks that strengthened loan
covenants declined from 52 percent to 43 percent over the same period. The one exception was the percentage of
foreign institutions that increased the costs of credit lines, which moved up noticeably from 35 percent in the
previous survey to 57 percent in April.

A significant percentage of banks that tightened standards or terms on C&I loans over the past three months pointed to
a reduced tolerance for risk as a reason for doing so and continued to voice concerns about the economic outlook. In
the current survey, three­quarters of domestic and foreign respondents cited reduced tolerance for risk as a reason
for tightening their lending policies, about the same fraction as in January. About 70 percent of domestic banks also
indicated that a less favorable or more uncertain economic outlook was a reason for changing their standards and terms
over the past three months. While still high, this fraction represents a marked decline from the January survey in
which all but one domestic bank indicated that this was at least a somewhat important reason for tightening their
lending policies. Furthermore, only 10 percent of domestic respondents in the current survey noted that a less
favorable or more uncertain economic outlook was a “very important” reason, down from 40 percent in the January
survey.

About one­third of domestic banks, on net, reported weaker demand for C&I loans from both large and small firms over
the past three months, down from roughly one­half in the January survey. Every domestic bank that experienced weaker
demand reported that a decline in customers needs for bank loans to finance capital expenditures was at least a
somewhat important reason for the weakness in demand, and more than one­third of respondents indicated that this
reason was “very important.” As in the January survey, banks also reported weaker demand for loans to finance mergers
and acquisitions, inventories, and accounts receivable. Out of eight banks that reported an increase in demand for
C&I loans, six of them indicated that the increase was due to a shift in borrowing from other bank or nonbank credit
sources that became less attractive, likely, at least in part, a reflection of the recent pressures in the market for
commercial paper. The same number of banks identified a decline in customers internally generated funds as a reason
for higher C&I loan demand. The net percentage of foreign branches and agencies reporting weaker demand for C&I loans
fell from nearly 50 percent in January to 14 percent in the current survey. The most frequently cited reason for
weaker demand at foreign institutions was a decline in requests for merger and acquisition financing.

Commercial paper backup lines of credit. A series of special questions was aimed at changes in banks' policies with regard to commercial
paper backup lines of credit over the past twelve months. Forty­six of the largest domestic banks and nineteen foreign institutions indicated
that they provide these facilities on a regular basis.1 Domestic banks accounting for more than
one­third of respondents' total lending facilities—defined as the sum of C&I loans and unused commitments—tightened standards on commercial paper
backup lines of credit for nonfinancial firms with A1/P1 commercial paper ratings over the past year; domestic institutions accounting for about 60
percent of total lending facilities indicated doing so for firms with A2/P2 ratings. The (unweighted) fraction of foreign institutions that had
tightened standards on commercial paper backup lines of credit for nonfinancial firms with an A1/P1 commercial paper rating over the past twelve
months stood at 60 percent, while almost 90 percent reported doing so for lower­rated borrowers.

Domestic banks accounting for more than 90 percent of total lending facilities indicated that they had increased fees and raised spreads associated
with commercial paper backup lines of credit for commercial paper issuers with both A1/P1 and A2/P2 ratings. Virtually all of the banks pointed to
heightened concerns about possible deterioration in issuers credit quality and a higher probability of lines being drawn because of less certain
conditions in the commercial paper market as reasons for tightening standards and terms. Over the past twelve months, about 10 percent of domestic
banks (weighted) and 10 percent of foreign institutions (unweighted), on net, reported stronger demand for commercial paper backup lines of credit
from nonfinancial issuers with both A1/P1 and A2/P2 ratings.

Commercial real estate lending. The net fraction of domestic banks that reported tighter standards on commercial real estate loans over the
past three months declined from 46 percent in January to 30 percent in the current survey. At branches and agencies of foreign banks, the net
percentage reporting tighter standards on commercial real estate loans remained stable at about 20 percent. In the current survey, more than 30
percent of domestic respondents, on net, noted that demand for commercial real estate loans had weakened, down from 43 percent in January; among
foreign institutions, 25 percent, on net, reported weaker demand for this type of loan over the past three months.

A set of special questions addressed how the lack of insurance against terrorism has affected commercial real estate lending. About 70 percent of
domestic respondents indicated that less than 5 percent of the dollar volume of their commercial real estate loans outstanding—either held on their
books or securitized—is backed by “high profile” or “heavy traffic” commercial real estate properties.2 For about one­fifth of banks, loans
financing such properties make up between 5 percent and 10 percent of their commercial real estate loan portfolio, while for the remainder, these
loans account for between 10 percent and 20 percent of commercial real estate loans outstanding. At foreign institutions, loans backed by high
profile properties account for somewhat larger shares of the respondents commercial real estate portfolios.

Almost three-quarters of domestic banks indicated that they require terrorism insurance
on less than 10 percent of loans financing high profile or heavy traffic commercial real
estate properties. Indeed, in their comments, a number of banks noted that their
standard commercial real estate loan contracts—especially for smaller loans (less than $10 million)—generally do not require terrorism insurance. However, six domestic and six
foreign respondents that answered these special questions reported that they require
insurance against terrorism on more than 90 percent of loans financing such properties.
As of the end of 2002:Q1, these six domestic banks accounted for about 8 percent of all commercial real estate loans in the United States, while
the six foreign institutions accounted for less than 2 percent of all commercial real estate loans.

Domestic respondents indicated that if coverage was required and an existing borrower was unable to secure adequate insurance against terrorism
for a high profile or heavy traffic commercial real estate property, their most likely response would be to ask for additional collateral and to
modify the existing loan covenants to allow for partial coverage. The foreign institutions, by contrast, noted that their most likely course of
action would be to increase fees or interest rates associated with the loan, and four foreign respondents indicated that they would be very likely
to call the loan or refuse to roll it over when it comes due.

Among domestic banks that received applications for loans to finance high profile commercial real estate properties since the events of
September 11, 90 percent indicated that their rejection rate on these loan applications has stayed about the same. Sixty percent of U.S. branches
and agencies of foreign banks that received applications for loans to finance these types of properties reported their rejection rate as
essentially unchanged. Almost 80 percent of domestic banks and more than 70 percent of foreign institutions indicated that they experienced little
or no change in demand for loans to finance high profile and heavy traffic properties because potential borrowers were unable to secure affordable
insurance against acts of terrorism. Seven domestic banks reported moderately weaker demand and four domestic and three foreign institutions
experienced substantially weaker demand for loans to finance such properties because of issues related to terrorism insurance.

Lending to Households(Table 1, questions 18-25)

Domestic banks credit standards for approving residential mortgage loans were largely unchanged over the past three months, with only one bank reporting that it had
tightened lending standards somewhat, the same as in the January survey. On net,
about 6 percent of domestic respondents reported increased demand for residential
mortgages, down from 30 percent in January.

In the current survey, less than 10 percent of banks indicated that they had tightened
standards on credit card loans over the past three months, a somewhat smaller percentage
than in January; terms and conditions on existing credit card accounts were largely
unchanged. For other types of consumer loans, one­fifth of banks reported that they had
tightened standards over the past three months, about the same percentage as in the January
survey. Almost one­quarter of domestic banks raised the minimum required credit score on
consumer loans other than credit card loans, and 15 percent reduced the number of exceptions
granted to customers not meeting credit­scoring thresholds. On net, banks reported demand
for consumer loans as about unchanged over the past three months.

1.
To account for the concentration of commercial paper backup lines of credit among the largestinstitutions, responses to this set of
questions for domestic banks were weighted by the sum of C&I loans and unused commitments obtained from the 2001:Q4 Call Report.
These weights are intended to proxy for banks participation in this line of business. Data on unused loan commitments are
unavailable for U.S. branches and agencies of foreign banks.

2.
For the purposes of the survey, high profile or heavy traffic commercial real estate properties were defined as landmark
buildings and commercial properties in their vicinity, stadiums and other sports/entertainment venues, and large shopping
malls.